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ECB Poised to Extend Bank Capital Relief by Nine Months
2021-06-16 08:27:34.534 GMT

By Nicholas Comfort and Steven Arons
(Bloomberg) — The European Central Bank is set to extend a
key plank of its pandemic relief measures by nine months to
ensure lenders keep supplying credit to the economy, according
to people familiar with the matter.
The ECB’s supervisory board plans to allow lenders to
continue to exclude deposits held at central banks when
calculating their leverage ratio until March next year, said the
people, who asked to remain anonymous as the matter isn’t
public. The measure still needs approval from the ECB’s
Governing Council to take effect, they said.
An ECB spokesman declined to comment. The exemption, which
would otherwise expire on June 27, effectively makes banks look
stronger and allows them to do more business with existing
financial reserves.
The ECB’s stance contrasts with that of its peers in
Switzerland and the U.S., which allowed leverage ratio relief
measures to expire this year. It highlights the euro area’s
stronger reliance on bank loans, rather than capital markets, as
a source of corporate financing. The ECB and other authorities
have given banks unprecedented regulatory relief during the
pandemic to help them absorb losses and keep lending, and by now
many institutions have seen earnings rebound.

Monetary Policy

Bloomberg reported last month that banks were lobbying to
extend the temporary capital relief.
The leverage ratio relief has helped avoid unintended
consequences from the ECB’s pandemic bond-buying program. Bond
purchases by the ECB have put more money into the lenders’
accounts at the central bank, which may end up making those
lenders look more highly leveraged were they not exempted.
Read More: ECB Piles on Stimulus Even With Most Upbeat Risk
View Since 2018
Some European bank regulators are keen to avoid extending
the leverage ratio relief beyond March, said the people.
Separately, the supervisory board will discuss next month
whether to lift a cap on bank dividends at the end of September.
The ECB has said it will remove its restrictions, which have
weighed on banking stocks, if the economy doesn’t deteriorate.
While the discussion on dividends has yet to take place,
several European bank regulators expect the cap to be lifted,
according to the people familiar with the matter.
Andrea Enria, who chairs the supervisory board, said on
Tuesday that he hopes to exit the cap soon.

To contact the reporters on this story:
Nicholas Comfort in Frankfurt at ncomfort1@bloomberg.net;
Steven Arons in Frankfurt at sarons@bloomberg.net
To contact the editors responsible for this story:
Dale Crofts at dcrofts@bloomberg.net
Jeff Black

To view this story in Bloomberg click here:
https://blinks.bloomberg.com/news/stories/QUR7XIT0G1KX